Article 198 of the Saudi Bankruptcy Law
المادة 198 من نظام الإفلاس · الفصل الثاني عشر: أولوية الديون
The article requires the proceeds of selling the estate's assets to be distributed among creditors of the same priority, and by pro rata sharing if the proceeds do not cover their debts.
Official text (Arabic)
This article has not been amended since the law was issued.
توزع حصيلة بيع أصول التفليسة على الدائنين ذوي الأولوية نفسها، وإذا لم تكف حصيلة بيع أصول التفليسة لسداد ديون الدائنين ذوي الأولوية نفسها، فتوزع الحصيلة عليهم عبر قسمة الغرماء.
This is the official Arabic wording, the only legally binding version. We do not translate the law itself; the explanation below is ours. Official source: Bureau of Experts at the Council of Ministers
Article 198 explained in plain English
This article explains how the proceeds of selling the bankruptcy estate's assets are distributed among creditors who fall in the same rank of priority.
It sets out two rules:
- The proceeds are distributed among creditors of the same priority.
- If the proceeds are not enough to pay these creditors' debts in full, they are distributed among them by pro rata sharing (qismat al-ghuramaa), meaning the available money is divided among the creditors in proportion to each one's debt, so no one is preferred over another within the same rank.
This means equality among creditors applies within a single rank. If the proceeds suffice, the creditors in that rank receive their rights in full; if not, they share what is available proportionally, and each bears a part of the shortfall in line with his debt.
It is linked to Article 197, which treats the part of a secured debt that the sale proceeds of the securing asset do not cover as an unsecured debt, so its holder joins the unsecured creditors and shares with them under this article. The order of priority outside the liquidation, liquidation for small debtors and administrative liquidation procedures is set by the Implementing Regulations under Article 199. For an assessment of a specific situation, consult a lawyer specializing in bankruptcy and commercial cases.
Practical example
SAR 300,000 remains from the liquidation proceeds of a company in Riyadh for the unsecured creditors, whose debts are: one supplier owed SAR 400,000 and another supplier owed SAR 200,000. Because the proceeds are not enough, they are shared between them by pro rata sharing in proportion to each one's debt, so the first receives SAR 200,000 and the second SAR 100,000.
Translated from our Arabic explanation with machine assistance. For guidance only; it does not replace advice from a lawyer on your situation.
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Frequently asked questions about Article 198 of the Saudi Bankruptcy Law
How are a bankrupt company's funds distributed if they do not cover the creditors?
The sale proceeds are distributed among creditors of the same priority, and if they do not cover their debts they are distributed among them by pro rata sharing (qismat al-ghuramaa).
What is meant by pro rata sharing (qismat al-ghuramaa)?
It is dividing the available money among the creditors in proportion to each one's debt, without preferring any of them over another in the same rank.
More articles on Set-Off and Priority of Debts
- Article 81
A financial restructuring proposal may not include anything that contravenes the provisions of the law and relevant laws on set-off and priority of debts, and any contravening act is void.
لا يجوز أن يتضمن المقترح ما يخالف أحكام النظام والأنظمة ذات العلاقة بشأن حقوق المقاصة وأولويات الديون، ويعد باطلاً أي تصرف خلاف ذلك.
- Article 82
The trustee sells the bankruptcy estate assets securing the debtor's debt under the plan and with court approval, deposits the net proceeds in a separate account for the secured creditor, and the surplus in the debtor's account.
يتولى الأمين -بناء على الخطة وبعد موافقة المحكمة- بيع أي من أصول التفليسة الضامنة لدين المدين خلال فترة الإجراء بالأسعار المتداولة وقت البيع. وعليه بعد استيفاء
- Article 113
The article makes undue debts that are established against the debtor payable and due as soon as the liquidation procedure is opened.
تكون الديون غير الحالة الثابتة في ذمة المدين واجبة ومستحقة الأداء فور افتتاح إجراء التصفية.
- Article 116
The article governs the trustee's decision to distribute the proceeds of selling the estate assets to creditors, notice of it, objecting to it, and reserving amounts for debts in court dispute.
1- يصدر الأمين قراراً بتوزيع حصيلة بيع أصول التفليسة على الدائنين وفقاً لما تحدده اللائحة، ويتولى الأمين توزيع هذه الحصيلة على الدائنين مرة واحدة وفقاً لترتيب ا
- Article 187
The article provides that any secured financing the court approves is considered priority financing.
كل تمويل مضمون توافق عليه المحكمة يعد تمويلاً ذا أولوية.
- Article 188
The article prohibits automatic set-off after protective settlement and financial reorganization (and their small debtor versions) open, and allows the proposal to provide for set-off of specified mutual debts.
مع مراعاة أحكام الفصل (الرابع عشر) من النظام، تحظر المقاصة التلقائية بعد افتتاح أي من الإجراءات الآتية: أ - التسوية الوقائية. ب - إعادة التنظيم المالي. ج - التس
The texts are reproduced from the official website of the Bureau of Experts at the Council of Ministers for reference; where they differ, the officially published Arabic text prevails. This content is not legal advice.